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Nic Cicutti: RDR shines a much needed light

Whenever I talk to IFAs, the one thing guaranteed to come up in our conversations is their weariness at the constant slew of paperwork hitting their desks and email inboxes from regulators and other sources, updating rules and regulations or offering “fresh” insights into their business practices.

Be it surveys, opinion panels, invitations to seminars, conference reports, special studies or whatever, the flood of information never ceases. IFAs are expected to assimilate and make sense of all of it – and that is before they even begin to advise their clients.

I feel a lot of sympathy for their plight, not least because, in common with most other journalists covering the financial services industry, I too have to wade my way through scores of the same reports that reach advisers. My role is slightly different, however. I try to make sense of what they say, identifying any small nuggets of useful information that can help inform what goes into this column.

Last week, for example, not an unusual one by any means, I received 57 emails on the subject of the RDR alone. Skimming through each one plus any attachments in the – usually – forlorn expectation of finding a lonely pearl can take many hours.

Sometimes you find yourself pressing the delete button, only to realise after emptying your email bin at the end of the week that you have erased something that could have been used as part of the discussion.

Which is how I find myself in the slightly embarrassing situation this week of citing a press release without quoting the source, hoping the original sender of the email will confirm to verify the truth of what I am about to tell you.

Basically, it was about another seminar aimed at the IFA community, in which a panel of experts shared their experiences of how to inform consumers about the RDR. In-between a slew of familiar bromides about initiating a conversation with your clients before the change-over was one small real-life experience from an adviser, telling his colleagues how to deal with a delicate issue: the switch to fees.

He cautioned against making a direct comparison between fees and commissions because that might leave many clients in shock at the extent of the commissions they have unknowingly been paying for so many years. The end result, he warned, was that some might decide they wanted to have nothing more to do with their adviser.

Now, I don’t know about you but I was shocked by this comment. After all, we have had 10 years of the menu system, in which independent advisers should have been offering the option of paying by fee and an appropriate fee scale.

In the majority of cases – IFAs would also have been offering the alternative option of paying by commission and, for a range of common financial products, the commission the firm normally charges, set alongside average rates charged in the market.

Given this information, the assumption ought to have been that clients should not be unprepared for a homily from the advisers about the potentially costly effects of commissions as opposed to fees. Yet, somehow, they are. So much so that IFAs are now being advised not to make any direct comparisons between the two for fear of putting off consumers.

What we appear to have in the UK today is a large group of consumers who hate the idea of dealing with or talking about financial issues, about which they feel totally uninspired and uninformed. At the same time, they have grudgingly been won over to the idea that independent financial advice is the right option for them.

Having reached, exhausted by the effort, the IFA shore, all they want is for their adviser to deal with their financial issues. They prefer to ignore as much as possible the fact that some of their advisers are making lots of money out of them and delivering little in return.

Were they to do their homework and seriously begin to assimilate the wads of paperwork their adviser is handing over, they would realise that all is not well. But, like many of us, they prefer to ignore what is staring them in the face.

Which is why, for example, another email I received the week before last from the AIC came up with a list of questions for investors to quiz their IFAs about that were so basic – how often my portfolio will be reviewed, what my objectives as an investor and how will the performance of my portfolio be assessed against these objectives, among others – that one must ask why they have not been raised before.

No wonder my fellow-columnist Alan Lakey confessed not very long ago that he was facing so many problems trying to persuade his own clients that the fee option was better than the commission one – and that after January 2013 he, and thousands of former IFAs, will switch to restricted status.

What this individual IFA confirmed is what many of us have long suspected: the RDR will shine a tiny light into corners of the industry that many IFAs would rather not have to disclose to their clients. Amid all the gnashing and wailing about the RDR’s dire effects, that may yet turn out to be a small but interesting surprise for millions of consumers.

Nic Cicutti can be contacted at


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. As I mentioned in responding to Rob Reid’s latest article, the RDR will also focus consumer’s mind on cost rather than value which may undermine responsible IFAs who truly cost their advice. That is perhaps unhealthy especially when it is very difficult to explain just how high our true costs are. Having just prepared our initial meeting documents for post RDR meetings, it will take an hour at £150 per hour to explain them! Fortunately we have been on the page that we disclose full costs to our clients and what they can expect for some time and so the RDR is not really a threat and perhaps an opportunity. For some advisers though, I could not agree with you more.

  2. There are three issues here.

    The first is that in most peoples minds 3% of £100,000 isn’t very much whilst £3,000 is a substantial amount. IFA’s have traded on this for a long time.

    Secondly clients don’t like to commit themselves until they know what it is you are selling (sorry, recommending). Therefore they prefer not to agree to pay upfront for something they may not like, even if they end up paying more as a result.

    Finally, the regulators have totally misjudged disclosure regulations meaning that clients get so much information, most of which is completely irrelevant that they cannot work out what is important (charges) and what isn’t.

    Interestingly (and I’m not especially proud of this) but since moving to a fee based model I notice that my advice has changed somewhat in the clients interest. So maybe the FSA did get that one right.

  3. I agree with Sams point. All the recent reviews I have been doing have some very confused clients when it comes to RDR and the media coverage These are relatively financially savvy people who do actually read the mountains of paper they receive I suspect. I know due to the type of questions they ask.

    What is interesting to us is the questions about ‘why would I want to switch my advisers fee or commission off? If I do that then you would not do your job surely?’ – that was yesterday confused question as a result of the Funds Network letter.

    The day before was ‘Do I really need to know the details of what goes out and who get what? I only want to know what it costs me?’ I was explaining the unbundles charges on the Aviva wrap.

    Sorry Nic but I dont think the public at large care a lot about RDR or charges in detail or the choices it gives the public. Its more an industry obsession and a slight nasal gazing I feel.

    As an IFA and you as a jounalist, even the regulators – find all this stuff interesting because its our jobs to know. Clients find it irrelavent to them as they want to know what it costs and what they get for their money – that is all. This extra information provided is going to become a mountain of paperwork very soon and that has the real danger of switching the UK public off. Which is the exact opposite of what we needto happen.

  4. Greg Heath – I agree completely.

    When I buy a washing machine I don’t care how much of the purchase price is going to Hotpoint, Curry’s and the Government. All I care about is the value that the product brings me and the actual cost in pounds.

    The big mistake of RDR and regulation in general is the belief that the public is interested. They are not!!

    Every time the regulators act they make FS more complicated, more expensive and even harder for the consumer to understand.

  5. Interesting article Nic and I agree with the content. RDR will ‘shine a light’ onto adviser charges and, in particular, where arguably excessive initial charges for advice are made.

    The cynic in me feels that this is one of the main reasons why the high street Banks are exiting the advice market – independent or otherwise.

    We have worked on a Client Agreed Remuneration basis for a good while and we quote our charges both at a %’age and in good old £’s sterling.

    I would therefore like to think that our clients are fully aware and understand both what we charge for our work and, perhaps most importantly, what they should expect in return.

    As outlined by Sam, the focus on costs (rather than value) is a concern however we’ve long felt that by maintaining our Independence AND adopting a CAR model, the client should take comfort that we are aligned to their best interests and that net returns after charges is an important part!

    Post RDR, I hope transparency will become more prevalent in our profession and (I sincerely hope) this will begin to remove the stigma sometimes placed on advisers…..

    In the meantime, I’ve had 3 discussions this last month with potential new clients and their starting point was that they thoughts we will have to charge hourly rates from January…! So yes, communication will be important.

  6. We very much agree with Nic Cicutti’s comment that ‘the RDR will shine a tiny light into corners of the industry’ – and we too have high hopes that the RDR will have a positive effect on levels of consumer illumination.

    However we also hope that the media spotlight can now start moving away from a regurgitation of the all too well-documented past ills of the UK financial advice industry, and towards what we genuinely believe will be a far brighter future. We would not be entering the market were we not completely convinced of the willingness of consumers to pay a fee for high-quality professional advice….provided the added value that will be delivered to their financial lives is explained clearly and effectively.

  7. We would very much agree with Nic Cicutti’s comment that ‘the RDR will shine a tiny light into corners of the industry’ – and we too have high hopes that the RDR will have a positive effect on levels of consumer illumination.

    However we also hope that the media spotlight can now start moving away from a regurgitation of the all too well-documented past ills of the UK financial advice industry, and towards what we genuinely believe will be a far brighter future. We would not be entering the market were we not completely convinced of the willingness of consumers to pay a fee for high-quality professional advice….provided the added value that will be delivered to their financial lives is explained clearly and effectively.

  8. Larry in London 4th October 2012 at 3:54 pm

    Hello Playmates!

    People don’t give a toss about how much their IFA receives, only that the damn thing works and that their IFA is paid enough to make it worth her while putting up with them in the future.

    The FSA has been pissing RDR down their collective leg for so long now, and enjoying it, they think the public gives a damn. They don’t.

    The only effect of RDR will be to put more people off doing what they should whilst businesses wither on the vine. By doing away with CHOICE in favour of a regime so complicated that it defies explanation, the FSA has proved once again that it knows even less about business than we even dared hope. To that we could add the corollary that the RDR never was about protecting the public but all about protecting the FSA.

    Love and kisses

    Larrykins xxxx

  9. Thanks for making me smile about something which is no laughing matter, Larry!!

    I think you have got it there, kind of sums up many areas of UK industry..Being regulated out of business by rulemakers who have never been near the public that they claim to serve so well. Too many chiefs and not enough plebs!

  10. I am not a practising IFA but as I probed a IFA about a single premium life bond and particularly the commission (4% initial then 0.5%) I asked how the RDR come 1st Jan 2013 would affect him and he came out with this classic:

    “Same meat, different gravy.”

    That is, one way or the other, he will get his wonga, despite the FSA/FCA or whatever they will call themselves next week.

  11. As a consumer I know that when I make a purchase someone gets paid but so long as I get what I paid for at a price I deem fair and reasonable and that the goods or service does what it says on the tin then happy days.

    RDR to me is basically saying that all consumers are idiots.

    If we focus too much on cost then we lose sight of value.

    Do the FSA haggle with the milkman? Its 90 pence for a pint of semi skimmed mate – buy it or walk away.

    Larry – excellent post. Very amusing.

  12. 80 odd days to go and the FSA continues to believe that MIFID doesn’t exist. On whose face will the biggest egg be when Europe starts swinging its hammer? The FSA? Long Gone. FCA? Discredited by association on day 1. The providers with millions invested in fee based IT. The TSC headed by Andrew Tyrie have already seen the wind blowing. I’m off to the bookies to put odds on a delay of 1 year at least of RDR. Then it really will die at birth.

  13. Somewhat later than I intended I am responding to Nic’s incorrect summation of my post 2012 position.

    He states that I am going restricted because I am finding it difficult to persuade clients to pay fees.

    Not only is this incorrect but Nic really should be aware that restricted advisers not only have to have QCF4 but also have to agree some fee basis with their clients.

    The reason for going the restricted route is more to do with my inability to be bothered surmounting pointless obstacles placed in my way by unknowing regulators.

    My clients won’t suffer but my blood pressure will reduce.

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